Highlights of RBI's - 4th Bi-Monthly Monetary Policy Statement 2016-17 : Important Updates for IBPS PO/Clerk/RRB 2016:
Constitution of MPC has enhanced process of policy making: RBI Governor
Dear Friends, RBI Governor Urjit Patel on Tuesday (4th Oct 2016) said the constitution of Monetary Policy Committee - MPC has enhanced the process and quality of policy making. Addressing his maiden press conference as RBI Governor, Mr. Patel said that MPC discussions held yesterday were frank, intense and friendly in nature. Mr. Patel was addressing the media after announcing the fourth bi-monthly policy review wherein all the six members of the MPC unanimously voted for a 25 basis point repo rate cut.
Talking about non-performing assets, Mr. Patel said it is an important issue which requires to be handled with firmness and pragmatism. He said that it is a four step process that includes identification, reporting and recording of bad assets which will lead to the final step of resolution. The RBI Governor said that the central bank and the government are working hard to ensure that the banks come with clean balance sheets at the earliest and also that there is no lack of credit in the system.
On monetary policy transmission, Mr. Patel said transmission in terms of bank lending has been less than desired while it has been swift and decisive on the money market front. He, however added that transmission of rates by means of new lending by banks has been good.
On global market conditions, Mr. Patel said he expects that IMF will further downgrade global growth adding that he would be surprised if it doesn't. He said that weak global demand is most likely to bring down trade volumes.
Meanwhile, RBI Deputy Governor S S Mundra said that the apex bank is working hard to reduce risks emanating from mis-savings and cyber-crime. He said that a Special Cell has been formed to track large size frauds and bring them to a logical conclusion.
· The Reserve Bank of India (RBI) has decided to cut its key policy rate, or the repo rate, by 25 bps to 6.25 per cent. New Governor Urjit Patel, who took over a month ago from Dr.RaghuramRajan, announced his first monetary policy.
· There was no change in the cash reserve ratio (CRR) or the amount of money parked with the central bank as a percentage of bank deposits at 4 per cent. The decision to cut was taken after a two-day deliberation by the newly formed Monetary Policy Committee.
· The committee has three external members and three internal members from the RBI including the Governor. All 6 members voted in favour of a cut.
Following are the highlights of RBI's fourth bi-monthly monetary policy statement, 2016-17:
· Repo rate cut by 0.25% to 6.25%, Reverse Repo at 5.75%
· Cash reserve ratio or CRR unchanged at 4%
· Growth forecast at 7.6% for the current fiscal
· Normal monsoon to quicken growth momentum
· Inflation target remains 5% for March 2017, upside risk
· 6-member Monetary Policy Committee makes India's first collective interest rate decision
· All MPC members voted in favour of rate cut
· Foreign exchange reserve rose to all-time high of USD 372 billion by September
· Govt has announced measures to cool food inflation, which opened up space for rate cut
· Banks should cut lending rates as small savings rate has been lowered
· RBI Governor expects further downgrading of global growth
· To allow start-ups to raise up to USD 3 million ECB annually
· Next monetary policy on December 7.
· RBI's research department sees inflation at 5.3 percent in Jan-Mar 2017, from 5 per cent in the previous quarter
· Sees growth picking up to 7.9 percent in next year
· Pay Commission recommendations to spur price pressure
· Uncertainty around US elections, crude prices, global demand.
Policy Repo Rate
Repo (repurchase rate) is the rate(read: interest rate) at which RBI lends to bank for short- term against securities (like government securities, T-Bills). Reverse Repo is rate at which the banks park their excess cash with the RBI.
Reverse Repo Rate
Reverse Repo rate is the short term borrowing rate at which RBI borrows money from banks. The Reserve bank uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the banks will get a higher rate of interest from RBI.
Marginal Standing Facility Rate (MSF)
Marginal Standing Facility (MSF) rate refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government securities. MSF is a very short term borrowing scheme for scheduled commercial banks.
Bank rate in India is determined by Reserve Bank of India (RBI). It is the rate which at RBI gives loan to commercial banks without keeping any collateral. The RBI also provides short term loans to its clients (keeping collateral) which are called the repo rate.
Cash Reserve Ratio (CRR)
Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country.
Statutory liquidity ratio (SLR)
Statutory liquidity ratio (SLR) is the Indian government term for reserve requirement that the commercial banks in India require to maintain in the form of gold, government approved securities before providing credit to the customers.
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